4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  377

Chapt
er14
TheBasi
cTool
sofFi
nanc
e
1. Thefie l
doffinanc estudieshow
a.s oci
etymana gesit
sscarceresources.
b.peopl emakedec i
sionsregardingr esourceall
ocat
ionovert
imeandhow tohandl
eri
sk
c. peopledeci
dewhet herornott obec omer iskaver
se.
d.s oci
etycanreduceaggr e
gater i
sk.
ANSWER: b. how peoplemakedec i
sionsr egar
dingresour
ceall
oca
tionovert
imeandhow t
ohandl
eri
sk
TYPE:M DI FFI
CULTY:1SECTI ON:14. 0

2. Ifyouput$300inanac
countpa
ying2per
centi
nter
est
,whati
sthef
utur
eval
ueoft
hisac
counti
ntwoye
ars
?
a.$310
b.$312
c. $312.
12
d.$314.24
ANSWER: c. $312.
12
TYPE:M DI FFI
CULTY:1SECTION:14.
1

3. Whati st
hefutur
evalueof$500oneye
arf
rom t
oda
yift
hei
nter
estr
atei
s6per
cent
?
a.$503
b.$515
c. $530
d.Noneoft heabovearecorr
ect
.
ANSWER: c. $530
TYPE:M DI FFI
CULTY:1SECTI ON:14.
1

4. Whati sthefutureval
ueof$750oneyearf
rom toda
yifthei
nter
estr
atei
s3per
cent
?
a.772. 73
b.772. 50
c. 773.33
d.Noneoft heabovearecorr
ectt
otheneares
tpenny.
ANSWER: b. 772.50
TYPE:M DI FFICULTY:1SECTI ON:14.1

5. Whati st
hefutur
evalueof$800oneyearf
rom toda
yifthei
nter
estr
atei
s7per
cent
?
a.$747.66
b.$756.00
c. $856.
00
d.Noneoft heabovearecorr
ectt
otheneares
tpenny.
ANSWER: c. $856.
00
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

6. Whati st
hefutur
evalueof$333atani
nter
estrat
eof3pe
rcentoneye
arf
rom t
oda
y?
a.$337.39
b.$342.99
c. $343.
09
d.Noneoft heabovearecorr
ectt
otheneares
tpenny
.
ANSWER: b. $342.
99
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

7. Whati st
hefutur
eval
ueof$450atani
nte
res
tra
teof11pe
rcentoneye
arf
rom t
oda
y?
a.$495.00
b.$495.40
c. $494.
50
d.$499.50
ANSWER: d. $499.
50
TYPE:M DI FFI
CULTY:1SECTI
ON:14. 1

about:blank 1/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

378  Chapter 14/The Basic Tools of Finance

8
. Twoyear sagoRudolphput$3,
000inanaccountpayi
ng3per
centi
nter
est
.How muc
hdoe
sheha
vei
ntheac
count
today?
a. $3,180.
00
b.$3, 182.
70
c. $3,183.
62
d.Noneoft heabovear
ecorre
cttothene
arestpenny
.
ANSWER: b. $3,
182.
70
TYPE:M DI FFICULTY:1SECTION:14.1

9
. Threeye ar
sagoWarrenput$1,
200ina
nac
countpa
ying2pe
rce
nti
nte
res
t.How muc
hist
heac
countwor
tht
oda
y?
a. $1,225.
38
b.$1, 248.
48
c. $1,264.
72
d.$1, 273.
45
ANSWER: d. $1,
273
.45
TYPE:M DI FFICULTY:1SECTION:14.1

10. Lisade posit

s$250inanacc
ountandoneye
arl
ate
rhas$270
;wha
twast
hei
nte
res
tra
te?
a. 8percent
b.9per cent
c. 10percent
d.Noneoft heabovear
ecorr
ect
.
ANSWER: a. 8percent
TYPE:M DI FFI
CULTY:1SECTI ON:14.
1

11. Ma rkput s$500inanaccountandoneye

arl
ate
rhas$550;wha
twast
hei
nte
res
tra
teont
heac
count
?
a. 10percent
b.9per cent
c. 8percent
d.Noneoft heabovear
ec or
rect
.
ANSWER: a. 10perce
nt
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

12. Dar byputs$75inanac c

ountandoneye arla
terhas$100;wha
twast
hei
nte
res
tra
teont
heac
count
?
a. 20perce
nt
b.25per ce
nt
c. 30perce
nt
d.Noneoft heabovear
ecorre
ct.
ANSWER: d. Noneoft heabovearecor
rec
t .
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

13. Sus anputs$125int

oanacc
ountandoneye
arl
ate
rhas$13
5;wha
twast
hei
nte
res
tra
te?
a. 5percent
b.7per cent
c. 8percent
d.10pe rcent
ANSWER: c. 8per
cent
TYPE:M DI FFI
CULTY:1SECTION:14.
1

14. Fr edputs$150int
oanac
countwhentheint
ere
strat
eis4pe
rcent
.La
terhec
hec
kshi
sbal
anc
eandfindshehasabout
$168.
73.How longdi
dFre
dwa i
ttochec
khisbalanc
e?
a. 3years
b.3. 5ye
ars
c. 4years
d.4.5years
ANSWER: a. 3ye ar
s
TYPE:M DI FFI
CULTY:2SECTION:14.
1

about:blank 2/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  379

15. Br adput s$200i

ntoanac c
ountwhentheint
eres
tra
tei
s8per
cent
.Late
rheche
ckshi
sbal
anc
eandfindst
hatheha
sa
balanceofabout$272.
10.How manyyear
sdidhewaitt
oche
ckhisbal
anc
e?
a. 3ye ar
s
b.3. 5years
c. 4ye ar
s
d.4. 5years
ANSWER: c. 4years
TYPE:M DI FFICULTY:2SECTI ON:14.
1

16. J ac
kieputs$400intoanaccountwhenthei
nte
res
trat
eis10perc
ent.La
ters
hec
hec
kshe
rbal
anc
eandfindsi
t’
swor
th
about$708.
62.How ma nyyearsdids
hewaitt
ochec
khe rbal
ance
?
a. 5years
b.6ye ars
c. 7years
d.8ye ars
ANSWER: b. 6year
s
TYPE:M DI FFI
CULTY:2SECTI ON:14. 1

17. Alc laimst hat$200c olle

c ti
ng4pe r
c e
ntintere
stfor2yearshast
hesamef utur
evalueas$200c
oll
ect
ing8perc
ent
int
erestfor1ye ar.Billsaystha twaiti
ngoneye arfor$200whentheint
erestra
tei
s8pe rc
enthast
hesamepresent
val
ueaswai ting2ye arsf or$200whe ntheinter
estra
teis4perc
ent.
a. BothAlandBi llarecorr e
ct.
b.Bot hAlandBi llareincor r
e c
t.
c. Onl yAli scorrect.
d.Onl yBi lliscorrect.
ANSWER: b. BothAlandBi llareincorr
ect.
TYPE:M DI FFICULTY:3SECTI ON:14. 1

18. Al ic
ec l
aimst hat$700pa i
doneye arfrom now whentheint
er e
stra
teis6perc
e nthasahi
gherpre
s entval
uethan
$700twoye arsfrom now whe ntheinter
estratei
s3percent
.Be t
hclai
msthatthefutur
evalueof$700inoneyear
whe ntheinterestra
teis6percenti
smor et hanthef
uturevalueintwoyear
sof$700whe ntheint
e r
e s
trat
eis3
percent
.
a. BothAl i
ceandBe t
har ecor
rect
.
b.Bot hAl i
ceandBe t
har ei
ncorrect
.
c. OnlyAl i
cei scorre
ct.
d.Onl yBe thisc or
rect
.
ANSWER: c. Onl yAliceiscor
rect
.
TYPE:M DI FFICULTY:3SECTI ON:14.1

19. Al exsaysthat$400s a
vedf oroneye arat4pe r
centi
nte
resthasasmall
erfutur
evaluet
han$400savedf
ortwoyear
sat
2percenti
nterest
.Br i
ansayst hatt
hepr esentval
ueof$400oneyearfr
om todayi
ftheint
ere
str
ateis4per
centi
s
worthmor ethant hepresentvalueof$400t woyearsf
rom toda
yiftheint
eres
tra
teis2perc
ent
.
a. AlexandBr ia
nar ebothc orrec
t.
b.Al exandBr ia
nar ebothi ncorr
ect.
c. OnlyAl exiscorrec
t.
d.Onl yBr i
anisc orr
ect.
ANSWER: a. AlexandBr ianar ebothcorre
ct.
TYPE:M DI FFI
CULTY:3SECTI ON:14. 1

20. Amys ayst

hatt
hef utureval
ueof$250s ave
df oroneyearat6per
centisle
ssthanthefutur
evalueof$250savedfor
twoyearsa
t3pe r
cent.Bradsaysthatthepre
sentvalueofa$250paymentinoneye arwhentheint
eres
trat
ei s6
per
centisl
esst
hant hevalueofa$250pa ymentintwoye ar
swhent heint
ere
strat
ei s3per
cent
.
a. AmyandBr adarebot hcor
rect.
b.AmyandBr adarebot hi
ncorrect
.
c. OnlyAmyiscorrect.
d.Onl yBradi
scorrect
.
ANSWER: c
. Onl
yAmyi sc or
rect
.
TYPE:M DIFFICULTY:3SECTI ON:14.1

about:blank 3/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

380  Chapter 14/The Basic Tools of Finance

21. Thr eepe oplegot othebanktocashinthei

raccounts
.Apr i
lhadhermone yinanaccountfor25ye
arsat4pe r
cent
int
erest
.Be nhadhi smone yinanaccountf
or20ye ar
sa t5per
centi
nteres
t.Cat
hyhadhe rmone yi
na naccountfor
fiveye arsa t20pe rc
entinte
res
t.I
feachofthem ori
ginal
lydeposi
ted$500inthei
raccounts
,whichofthe
m ge t
sthe
mostmone ywhent heycashint
heiracc
ounts?
a. Apr i
l
b.Be n
c. Cathy
d.The ye achge tthesameamount .
ANSWER: a. Apr i
l
TYPE:M DI FFICULTY:2SECTI ON:14.1

22. Ke ll
yde posit
ed$1, 000i
ntoanaccountt
hreeyear
sago.Thefirstt
woyear
sshee
arne
d5pe
rce
nti
nte
res
t,t
het
hir
dshe
ear
ned6pe rc
ent .How muchmone ydoesshehaveinherac
countt
oda
y?
a. $1,157 .
90
b.$1, 168 .
65
c. $1,176.00
d.Noneoft heabovear ecor
rectt
otheneare
stpenny.
ANSWER: b. $1,168.
65
TYPE:M DI FFI CULTY:2SECTI ON:14.1

23. Gr acede posi

ted$10,000int
oanac countt
hreeye arsa
go.Thefirstye
arsheear
ned12per
centi
nter
est
,thes
e c
ondye
ar
sheearned8per ce
nti nt
erest
,andthethir
dye ars hee
arned4per
centi
nte
rest
.How muchmoneydoesshehavein
heraccounttoday?
a. $12,579.
84
b.$12, 596.
80
c. $12,597.
12
d.Noneoft heabovear ecorr
ectt
ot henear
es tpenny.
ANSWER: a. $12,
579.84
TYPE:M DI FFICULTY:2SECTI ON:14.1

24. Os cardeposi
ted$500int
oanaccountt
woyearsa
go.Thefirstye
arhee
ar ned3per
centi
nte
res
tandt
hes
econdye
ar
heearned5percenti
nter
est
.How muchmoneydoesOs c
arha
veinhi
saccountnow?
a. $540.
75
b.$540.80
c. $540.
85
d.Noneoft heabovearecor
rectt
othene
ares
tpenny.
ANSWER: a. $540.
75
TYPE:M DI FFI
CULTY:2SECTI ON:14.1

25. Youar egi vent hre

eopt ions.Youma yha vethebal
anceinanaccountthathasbeencol
lect
ing5per centint
ere
stfor20
years,thebal anceinanac c
ountt ha
thasbe encoll
ect
ing10per
ce nti
nter
estfor10year
s,orthebalanceinanac c
ount
thathasbe e
nc ollec
ting20pe rcentint
erestforfiveyears
.Eachac c
ounthadt hesameorigi
nalbalance.Whichaccount
now hast hel owestbalance?
a.t hefir stone
b.t hes econdone
c.t het hirdone
d.I tdoe sn’tma tt
er;theyallhavethes a
mebal ance.
ANSWER: c . thet hi
rdone
TYPE:M DI FFI CULTY:3SECTI ON:14. 1

26. Ge orgehasalmost$300inhi
saccount
.Someyearsa
goheput$213.
20i
ntohi
sac
countt
hatpr
omi
sedt
opa
y5pe
rce
nt
int
erest
.How manyye ar
sagodidheopenhisacc
ount?
a. 4years
b.5ye ars
c. 6years
d.7ye ars
ANSWER: d. 7year
s
TYPE:M DI FFICULTY:2SECTION:14.
1

about:blank 4/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  381

27. Whe nhewas18,Gera

ldput$100int
oanaccounta
tani
nter
estr
ateof8pe
rce
nt.Henow hasa
bout$171.
38i
nthi
s
acc
ount.How manyyear
sdidGeraldle
avet
hismoneyi
nhisacc
ount?
a. 5year
s
b.6ye ar
s
c. 7year
s
d.8ye ar
s.
ANSWER: c. 7year
s
TYPE:M DIFFICULTY:2SECTION:14.
1

28. Fourye a
rsagoMa ttdeposi
tedsomemoneyi
ntoanaccount
.Heearned5per
centonthi
sac
countandnow hasa
bal
anc eofabout$303.
88.How muc hdi
dhedepos
iti
ntohisac
countwhenheopenedit
?
a. about$210
b.about$220
c. about$240
d.about$250
ANSWER: d. about$250
TYPE:M DI FFICULTY:2SECTI ON:14.1

29. Twoye ar
sa goEdgarputs
omemone yi
ntoanaccount
.Heearned6perc
entint
ere
stont
hisac
countandnow has
about$1,
000.Abouthow muchdidhedepos
iti
ntohisac
counttwoye
arsago?
a. about$860
b.about$870
c. about$880
d.about$890
ANSWER: d. about$890
TYPE:M DI FFI
CULTY:2SECTI ON:14.
1

30. Ma r t
input$250inanacc
ountthr
eeyear
sa go.Thefirs
tyearheear
ned6perc
enti
ntere
st,
thes
econdye
ar7per
cent
,
andthethir
dye ar8pe
rcent
.Abouthow a
boutmuc hdoesMarti
nhavei
nhisacc
ountnow?
a. $302.
50
b.$306.23
c. $308.
67
d.$309.39
ANSWER: b. $306.23
TYPE:M DI FFI
CULTY:2SECTION:14.1

31. Whi c
hoft hef oll
owi
ngi
sthec
orr
ectwa
ytofigur
ethef
utur ueof$Xt
eval hate
arnsrpe
rc orNye
entf ars
?
N
a. $X(1+r N)
N
b.$X( 1+r )
c. $X(1+r N)
d.$X( 1+r /N) N
N
ANSWER: b. $X( 1+r)
TYPE:M DI FFI
CULTY:1SECTI ON:14.
1

32. Whi chofthef oll

owi ngi sthec
orr
ectwa
ytofigur
ethef
utur
eval
ueof$1puti
nanac
countt
hate
arns5pe
rce
ntf
or20
years
?
20
a. $1(1+.05)
b.$1( 1+.05 20) 20
c. $1(1+.05 20)
20
.05
d.$1( 1+20/. 05)
20
ANSWER: a. $1( 1+. 05)
TYPE:M DI FFI
CULTY:1SECTI ON:14.
1

33. OnNe w Ye
ar’sDay1 975,thre
epalsagre
e dtoeac
hput$100i
ntot
hebankatafixedrat
eof5per
centandusethe
mone yforaNe w Year’
sPar t
yin2000.Attheendofthe25ye
arst
heyeac
hcashe
dinthei
rac
count
sandbroughtthe
mone y.Whatamounts houldtheyhaveeachhad?
a. $305.
18
b.$325.00
c. $338.
64
d.Noneoft heabovear ecorrec
ttot
hene are
stpenny
.
ANSWER: c. $338.
64
TYPE:M DI FFICULTY:2SECTI ON:14.1

about:blank 5/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

382  Chapter 14/The Basic Tools of Finance

34. Br i
ttanywant stohaveabout$250,
000whenshere
tir
esin10year
s.Shehas$100,
000t
ode
pos
itnow.
Whi
choft
he
fol
lowingintere
strat
eswouldge therwi
thi
n$100of$250,
000?
a. 9.6perc
ent
b.9. 8perc
ent
c. 10percent
d.10. 2perc
ent
ANSWER: a. 9.
6pe rc
ent
TYPE:M DI FFICULTY:3SECTI ON:14.1

35. Youwantt ohave$100,

000i
nfiveye
ars
.Ift
hei
nte
res
tra
tei
s8per
cent
,abouthow muc
hdoyoune
edt
osa
vet
oda
y?
a. $66,225.
25
b.$67, 556.
42
c. $68,058.
32
d.$71,428.57
ANSWER: c. $
68,058
.32
TYPE:M DI FFICULTY:3SECTI ON:14.
1

36. J ul
io,Paul,andJame sar
ea l
lint
e ndingt
oreti
re.Eac
hc ur
rentl
yhas$1mill
ioni
nasset
s.J
uli
owil
lret
irei
ntenyears
andge ts5pe r
centonhismone y.Paulwil
lret
ireinfiveye ar
sandgets10per
centonhi
smoney.J
ohnwi l
lre
tir
ein
twoye arsandge ts25per
centonhi smoney.Whowi llha
vethemostdoll
arswhenheret
ire
s?
a.J uli
o
b.Paul
c.J ames
d.The yallret
irewitht
hes a
meamount .
ANSWER: a. J
uli
o
TYPE:M DI FFICULTY:2SECTI ON:14. 1

37. Sagede c
idestocashi nallhissavingst oopenarecordi
ngstudio.Hehasthr
e eac
countst
ocashin.Thefirste
arned9
perc
entfortwoye ars.Thes econde arned6perc
entforthr
eeyear s
.Andthelaste
arned3percentf
orsi
xyear
s.
Supposinghes t
artedwi th$5,000ine achacc
ount,
from whichaccountwi
llhegetthemostcash?
a.thet wo-yearaccounta t9pe r
ce nt
b.thet hree-
yearac c
ounta t6pe r
c e nt
c.thes ix-
yearaccounta t3pe r
cent
d.Theac c
ountsar eallwor t
hthes ame.
ANSWER: c. thesi
x-yearac countat3pe rce
nt
TYPE:M DI FFICULTY:2SECTI ON:14. 1

38. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$79.
50oneye
arf
rom t
oda
yequa
lto$75t
oda
y?
a. 4per
cent
b.5percent
c. 6per
cent
d.7pe r
cent
ANSWER: c
. 6perce
nt
TYPE:M DIFFICULTY:1SECTION:14.
1

39. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$95.
40oneye
arf
rom t
oda
yequa
lto$90t
oda
y?
a. 4per
cent
b.5percent
c. 6per
cent
d.7pe r
cent
ANSWER: c
. 6perce
nt
TYPE:M DIFFICULTY:1SECTION:14.
1

40. Atwhi chint

eres
tra t
eist
hepresentvalueof$162.
24t
woye
arsf
rom t
oda
yequalt
o$150t
oda
y?
a. 4percent
b.5per cent
c. 6percent
d.Noneoft heabovearecor
recttotheneare
stpenny
.
ANSWER: a. 4percent
TYPE:M DI FFICULTY:1SECTI ON:14.1

about:blank 6/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  383

41. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$189.
28t
woye
arsf
rom t
oda
yequalt
o$175t
oda
y?
a. 2percent
b.4per cent
c. 6percent
d.8pe r
cent
ANSWER: b. 4perce
nt
TYPE:M DI FFICULTY:1SECTION:14.
1

42. Wha tisthepres

entvalueofapaymentof$100oneyearf
rom t
oda
yift
hei
nte
res
tra
tei
s5per
cent
?
a. $95.50
b.$95. 24
c. $95.00
d.Noneoft heabovearecor
rectt
otheneares
tpenny
.
ANSWER: b. $95.
24
TYPE:M DI FFICULTY:1SECTI ON:14.1

43. Wha tist

hepres
entvalueofapaymentof$150oneyearfr
om t
oda
yift
hei
nte
res
tra
tei
s6per
cent
?
a. $141.
11
b.$141.36
c. $141.
75
d.Noneoft heabovearecor
rectt
otheneares
tpenny
.
ANSWER: d. Noneoftheabovearecorr
ectt
otheneare
s tpe
nny.
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

44. Wha tist

heprese
ntvalueofapaymentof$250oneyearf
rom t
oda
yift
hei
nte
res
tra
tei
s4per
cent
?
a. $240.
38
b.$242.24
c. $244.
40
d.Noneoft heabovearecor
rectt
otheneares
tpenny
.
ANSWER: a. $240.
38
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

45. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$260.
10t
woye
arsf
rom t
oda
yequalt
o$250t
oda
y?
a. 2percent
b.3per cent
c. 4percent
d.5pe r
cent
ANSWER: a. 2perce
nt
TYPE:M DI FFICULTY:1SECTION:14.
1

46. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$135.
20t
woye
arsf
rom t
oda
yequalt
o$125t
oda
y?
a. 2percent
b.4per cent
c. 6percent
d.8pe r
cent
ANSWER: b. 4perce
nt
TYPE:M DI FFICULTY:1SECTION:14.
1

47. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$34.
99t
woye
arsf
rom t
oda
yequalt
oabout$30.
00t
oda
y?
a. 9percent
b.8per cent
c. 7percent
d.6pe r
cent
ANSWER: b. 8perce
nt
TYPE:M DI FFICULTY:1SECTION:14.
1

about:blank 7/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

384  Chapter 14/The Basic Tools of Finance

48. Oft hef ol

lowi
nginter
estr
ate
swhichi
sthehi
ghe
stonea
twhi
chyouwoul
dpr
efe
rtoha
ve$200t
enye
arsf
rom t
oda
y
ins
teadof$100today?
a. 2per c
ent
b.4per c
ent
c. 6per c
ent
d.8pe rc
ent
ANSWER: c. 6perc
ent
TYPE:M DI FFICULTY:2SECTION:14.
1

49. Oft hef ollowi

nginte
res
trat
eswhichi
sthehi
ghe
stonea
twhi
cht
hepr
ese
ntva
lueof$200t
enye
arsf
rom t
oda
yis
gre
atert han$150?
a. 2per cent
b.4per cent
c. 6per cent
d.8pe rcent
ANSWER: a. 2per
cent
TYPE:M DI FFI CULTY:2SECTION:14.
1

50. Ma ryput$6,139i nt
oanaccounttenye
arsago.Shenow has$10
,000i
ntheac
count
.Wha
twi
llhe
rbal
anc
ebei
n
another10ye ar
si fs
heget
sthes amerat
eofinter
est?
a. $16,105.
10
b.$16, 139.
00
c. $16,288.
95
d.Noneoft heabovearecorrectt
otheneares
tpe nny.
ANSWER: c. $16,288.
95
TYPE:M DI FFICULTY:3SECTI ON:14. 1

51. Youput$7 5inthebankoneyearagoandfor

gotabouti
t.Thebanks
endsyouanot
icet
hatyounow ha
ve$81i
nyour
acc
ount .Whatint
eres
tra
tedi
dyoue arn?
a. 5per c
ent
b.6per c
ent
c. 7per c
ent
d.8pe rc
ent
ANSWER: d. 8perc
ent
TYPE:M DI FFICULTY:1SECTION:14.1

52. Yourpar ent

sput$500intoanacc
ountpa
ying7per
centi
nter
estwhenyouweret
en.Now t
enyearsla
tertheyt
ellyou
thatyoucant akethemoneyoutoft
heacc
ounti
fyoucanfigur eoutt
hebal
anc
e.Whatisthebal
ancetotheneares
t
penny?
a. $1,200.
00
b.$1, 111.
77
c. $9,83.
58
d.$8, 50.
00
ANSWER: c. $983.58
TYPE:M DI FFICULTY:1SECTI ON:14.
1

53. Ge orgeknowst hathehasabout$95doll

arsi
nhisacc
ount.
Heknowsheearne
danint
ere
str
ateof4pe
rce
nt,buthe
doesn’tre
membe rhow muchheope nedtheacc
ountwit
hayeara
go.How muchdi
dheputin?
a. $91.00
b.$91. 20
c. $91.27
d.$91. 35
ANSWER: d. $91.
35
TYPE:M DI FFICULTY:1SECTION:14.1

about:blank 8/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  385

54. I fyouput$250i
nanaccountwit
ha4per
centi
nte
res
tra
te,how ma
nyye
arswoul
dyouha
vet
owai
ttoha
vea
bout
$370.
06?
a. 10
b.14
c. 17
d.20
ANSWER: a. 10
TYPE:M DI FFI
CULTY:1SECTION:14.
1

55. Youra c
countanttel
lsyouthati
fyouc anc
onti
nuetoearnthecur
renti
ntere
s tr
ateonyourbal
anc
eof$750forthe
nextthreeyear
s,youwi l
lhave$998.
25inyourac
count.I
fyouracc
ountantiscorr
ect
,whatist
hecur
renti
ntere
s tr
ate
?
a. 9percent
b.10per c
ent
c. 11per c
ent
d.12pe rc
ent
ANSWER: b. 10percent
TYPE:M DI FFICULTY:2SECTI ON:14.1

56. Youra c
c ountantt
ellsyoutha
tifyoucancont
inuetoear
nthecurr
entint
ere
str
ateonyourbal
anc
eof$800fort
he
nexttwoye ar
syouwi llha
ve$898.88i
nyouraccount
.Whatra
teofint
ere
stdoyouneedtoear
ntomeetyour
accountant’sexpe
ctati
ons?
a. 6per cent
b.7per cent
c. 8per cent
d.9pe rcent
ANSWER: a. 6percent
TYPE:M DI FFICULTY:2SECTI ON:14.1

57. Youra c
countantt
ell
syouthatifyouc
anconti
nuetoearnthecurr
entint
eres
trat
eonyourbal
anceof$5
00f
ort
en
year
s,youwi l
lhaveabout$983.58
.Whatr
ateofi
nter
estdoesyouracc
ountante
xpectyout
oearn?
a. 5percent
b.6per cent
c. 7percent
d.8pe r
cent
ANSWER: c. 7perc
ent
TYPE:M DI FFICULTY:2SECTION:14. 1

58. Suppos ethatt

hepr i
ceofabondisequalt
othesum oftheprese
ntval
ueofitsf
utur
epayment
s.Suppos
efur
therthat
thi
sbondpa ys$50inoneyearand$1,
050intwoyears
.Wha tisthepr
iceoft
hebondift
hei
nter
estra
tei
s5perc
e nt
?
a. $1,050.
00
b.$1, 045.
35
c. $1,000.
00
d.$945. 35
ANSWER: c. $1,000
.00
TYPE:M DI FFICULTY:3SECTI ON:14.1

59. Suppos et hatt

hepric
eofabondisequalt
othesum oft
heprese
ntval
ueofit
spayments
.Supposef
urt
hert
hatthe
bondpa ys$50todayand$1
,050oneyearf
rom t
oday.Whati
sthepri
ceoft
hisbondi
ftheint
eres
tra
tei
s5perc
ent?
a. $1,100 .
00
b.$1, 050 .
00
c. $1,047.62
d.$945. 35
ANSWER: b. $1,
050.
00
TYPE:M DI FFI CULTY:2SECTION:14.1

about:blank 9/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

386  Chapter 14/The Basic Tools of Finance

60. Suppos etha

tthepriceofabondi sequa
ltot
hesum oft
hepr es
entval
ueofi
tsfut
urepa
yments.Supposefurt
hert
hat
thebondpa ys$50today,$50oneyearfr
om t
oda
y,and$1,050twoyear
sfr
om toda
y.Whati
sthepriceofthi
sbondif
theintere
strat
eis5pe r
cent?
a. $1,000
b.$1, 050
c. $1,100
d.Noneoft heabovearec or
rec
t.
ANSWER: b. $1,
050
TYPE:M DI FFICULTY:2SECTI ON:14.1

61. Wha tisthepres

entval
ueofapayme
ntof$100t
obemadeoneye
arf
rom t
oda
yift
hei
nte
res
tra
tei
s5pe
rce
nt?
a. $105.26
b.$105. 00
c. $95.24
d.$95. 00
ANSWER: c. $95.
24
TYPE:M DI FFICULTY:1SECTION:14.
1

62. Wha tist

heprese
ntval
ueofapayme
ntof$200t
obemadeoneye
arf
rom t
oda
yift
hei
nte
res
tra
tei
s10pe
rce
nt?
a. $180
b.$181.82
c. $220
d.$222.22
ANSWER: b. $181.
82
TYPE:M DI FFI
CULTY:1SECTION:14.
1

63. Wha tist

hepresentval
ueofapayme
ntof$100t
obemadeoneye
arf
rom t
oda
y?
a. $100*
(1+r)
b.$100/(1+r )
c. $100–$100 r
d.$100–( 1+r)/$100
ANSWER: b. $100/(1+r)
TYPE:M DI FFI
CULTY:1SECTI ON:14.
1

64. I ft
hei nt
eres
trat
eis5percent
,whatisthepres
entval
ueofapayme
ntof$500t
obemadeoneye
arf
rom t
oda
y?
a. $457.
14
b.$475.00
c. $480.
77
d.Noneoft heabovear
ecorrec
ttotheneare
stpenny
.
ANSWER: d. Noneoftheabovearecorr
ectt
otheneare
stpenny
.
TYPE:M DI FFICULTY:1SECTION:14.1

65. Na tashapromisestopayJennif
er$1,
000intwoyears
.Iftheint
ere
str
atei
s6per
cent
,how manydol
lar
stoda
yist
his
fut
urepayme ntwor t
h?
a. $883.
60
b.$887.97
c. $893.
67
d.Noneoft heabovearecorr
ectt
othene ar
estpe
nny.
ANSWER: d. Noneoftheabovearecorre
cttothenear
estpenny.
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

66. Yourr i
chunc l
eEarlte
llsyoutha
thewillgi
veyou$500i
ntwoyear
s.Youc
ouldborr
ow thepr
esentva
lueoft
his$500
andwhenyourunc lesendsyouthegi
fthavej
uste
noughtopa
yofft hel
oan.Abouthow muchcanyouborr
ow ift
he
int
erestrat
eis11percent?
a. $396.05
b.$402. 13
c. $405.81
d.$409. 84
ANSWER: c. $405.
81
TYPE:M DI FFICULTY:3SECTI ON:14.1

about:blank 10/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  387

67. Atwhi chint

eres
tratei
sthepr
ese
ntval
ueof$183.
60t
woye
arsf
rom t
oda
yequalt
oabout$173.
06t
oda
y?
a. 2percent
b.3per cent
c. 4percent
d.5pe r
cent
ANSWER: b. 3perce
nt
TYPE:M DI FFICULTY:1SECTION:14.
1

68. Atwhi chinter

estr
a t
eist
hepr
ese
ntval
ueof$360t
hre
eye
arsf
rom t
oda
yequa
ltoabout$320t
oda
y?
a. 4percent
b.4. 5percent
c. 5percent
d.5.5pe rcent
ANSWER: a. 4percent
TYPE:M DI FFICULTY:1SECTION:14.
1

69. Thepr esentvalueofapa yme nttobemadeint hef

utureisl
owe rat
a. higherinterestr
a t
esandast heti
meuntilthepaymentisma deincreas
es.
b.hi gherinterestr
a t
esandast heti
meuntilthepaymentisma dedecreases.
c.lowe rinterestra
tesandast hetimeunt
ilthepaymentisma deincreases
.
d.l owerinterestra
tesandast hetimeunt
ilthepaymentisma dede c
reases.
ANSWER: a. a
thi gherint
eres
tratesandast
het imeunti
lthepayme ntismadei nc
reas
es.
TYPE:M DI FFICULTY:2SECTI ON:14. 1

70. Youar eexpecti

ngt orecei
ve$650a tsomet i
mei nthefuture.Whichoft
hefol
lowi
ngwoul
dde
cre
aset
hepr
esent
val
ueoft hisfuturepayment?
a.Int er
estrate
sr i
seandyouge tthepa yme ntsooner.
b.Int er
estrate
sr i
seandyouha vet owai tl
ongerforthepa yment
.
c.Int er
estrate
sfallandyouge tthepa yme nts
oone r
.
d.Int er
estrate
sfallandyouha vet owaitlongertogetthepayme nt
.
ANSWER: b. Intere
strate
sriseandyouha vetowaitlongerforthepayment
.
TYPE:M DI FFICULTY:2SECTI ON:14.1

71. Youar ee xpect

ingtor ecei
ve$750a tsomet imei nthefuture
.Whi c
hofthef
oll
owi
ngwoul
dinc
reas
ethepr
esentval
ue
oft
hisfut ur
epa yme nt
?
a.Interestrat
esriseandyouge tthepa yme ntsooner.
b.Interestrat
esriseandyouha vet owai tlongerforthepayme nt
.
c.Interestrat
esfallandyouge tthepa yme nts
oone r
.
d.Interestrat
esfallandyouha vet owai tlongertogetthepayment.
ANSWER: c. Int
erestrate
sfallandyouge tthepa ymentsooner.
TYPE:M DIFFI CULTY:2SECTI ON:14.1

72. Whi choft hef ol

lowingisthecorr
ectexpr
ess
ionf
orfindi
ngt
hepr
ese
ntva
lueofa$1,
000pa
ymentoneye
arf
rom
todayifthei nteres
tratei
s6pe rc
ent?
a. $1,000 ( 1.0
6).
b.$1, 000(1.06)
c. $1,000/( 1.06)
d.Noneoft hea bovearecorr
ect.
ANSWER: c. $1,000/(1.
06)
TYPE:M DI FFICULTY:1SECTI ON:14.1

73. Whi chofthefollowi ngisthecorr

ectexpr
ess
ionf
orfindi
ngt
hepr
ese
ntva
lueofa$500pa
yme
ntt
woye
arsf
rom
todayiftheinte
r estrateis4perc
ent?
2
a. $500/(1.
04)
2
b.$500–500( 1.04)
2
c. $500–$500/( .04)
d.Noneoft hea bovear ecorr
ect.
2
ANSWER: a. $500/( 1.04)
TYPE:M DI FFICULTY:1SECTI ON:14.1

about:blank 11/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

388  Chapter 14/The Basic Tools of Finance

74. YourAuntgi vesyou$100toda yandpr

omi
sest
opa
yyou$
100oneye
arf
rom t
oda
y.Wha
tist
hepr
ese
ntval
ueof
the
sepa yment s
?
2
a. $200/(1+r ).
b.$100+$100 /(1+r)
2
c. $100/(1+r )+$100/(1+r )
2
d.$100( 1+r)+$100( 1+r)
ANSWER: b. $100+$100/(1+r )
TYPE:M DI FFICULTY:1SECTI ON:14. 1

75. As sumi ngtheint

ere
str a
teis6pe r
cent
,whic
hofthefol
lowi
nghast
hegreat
estpr
esentva
lue
?
a. $300paidintwoye ars
b.$150pai dinoneye arplus$140paidint
woyears
c. $100paidtodayplus$100pa idinoneye
arpl
us$100paidi
ntwoyear
s
d.$285t oday
ANSWER: d. $285t
oday
TYPE:M DI FFICULTY:2SECTI ON:14.1

76. As sumi ngtheint

ere
stra
teis5perc
ent
,whi
choft
hef
oll
owi
nghast
hegr
eat
estpr
esentva
lue
?
a. $240paidinthre
eyears
b.$225pai dintwoyears
c. $210paidinoneyear
d.$200t oday
ANSWER: a. $240pai
dinthreeye
ars
TYPE:M DI FFICULTY:2SECTION:14.1

77. Suppos ethattheinte

restra
teis4perce
nt ,whi
chofthef
oll
owi
nghast
hegr
eat
estpr
ese
ntval
ue?
a. $100todayplus$190oneye arfr
om today
b.$150t odayplus$140oneye arfr
om today
c. $200todayplus$90oneye arfr
om today
d.$250t odayplus$40oneye arfr
om today
ANSWER: d. $
250t odayplus$40oneyearf r
om t
oday
TYPE:M DI FFI
CULTY:2SECTI ON:14.1

78. Suppos et ha
tthei
nteres
trateis7percent
.Consi
derfourpayme
ntopt
ions
:
OptionA:$500today.
OptionB:$550oneyearfrom today.
OptionC:$575twoye ar
sf r
om today.
OptionD:$600threeyearsfrom t
oday.
Whic hofthepaymentshasthehighestpres
entval
uetoday?
a. OptionA
b.Opt ionB
c. OptionC
d.Opt ionD
ANSWER: b. Opti
onB
TYPE:M DI FFICULTY:2SECTI ON:14.1

79. Suppos et hattheint e

restrateis8percent.Consi
dert
hreepaymentopt
ions
:
1.$200today.
2.$220oneye arfr
om t oday.
3.$240twoye arsfrom today.
Whi chofthef oll
owi ngist r
ue?
a. 1hast hehi ghestpresentvalueand2hast hel
owest
.
b.2hast hehi ghestpresentvalueand3hast hel
owest
.
c. 3hast hehi ghestpresentvalueand1hast hel
owest
.
d.Noneoft heabovear ecorrec
t.
ANSWER: c. 3hast hehighes tprese
ntvalueand1hasthelowest
TYPE:M DI FFICULTY:2SECTI ON:14.1

about:blank 12/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  389

80. J i
mmyc omputest hepr esentval
ueoft hreefuturepa yments.Whi
ch,i
fany
,di
dhec
omput
ecor
rec
tly?
a. $100oneye arfrom toda yat2pe r
centinterest=$98.81
b.$200t woye arsfrom toda yat3pe r
centinterest=$188.
22
c. $300threeyearsfr om todayat4pe rc
entinterest=$234.34
d.Noneoft hea bovear ec or
rec
ttothene arestpenny .
ANSWER: d. Noneoft heabovear ecorrec
ttot hene ar
e s
tpenny.
TYPE:M DI FFICULTY:2SECTI ON:14.1

81. Ma riac omputesthepre

se ntvalueofthreefutur
epa yments
.Whichifanydi
dshec
omput
ecor
rec
tly?
a. $1,000oneyearfr
om t odayat8pe rc
entinter
est=$945.
45
b.$1, 000oneyearfr
om t odayat9pe rc
entinter
est=$911.
11
c. $1,000oneyearfr
om t odayat10pe rc
entinter
est=$909.
09
d.Noneoft heabovearec or
r e
cttothene ar
estpenny.
ANSWER: c. $1,
000oneye arfrom todayat10pe r
centint
ere
st=$909.
09
TYPE:M DI FFICULTY:2SECTI ON:14. 1

82. Whi chofthefoll

owinghasapr e
se ntva lueof$100?
a. $110intwoye ar
swhe ntheinterestr at
eis5pe rce
nt
b.$112.36int woyearswhenthei nterestrat
eis6pe rcent
c. $117.
49int woyearswhenthei nterestrat
eis7pe rcent
d.Noneoft heabovearecorr
ecttot hene ares
tpe nny.
ANSWER: b. $112.
36intwoyearswhent heinte
restratei
s6per
cent
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

83. Suppos ethatt hei nt

erestrateis5per c
ent.Consi
derthreepa
yme ntopt
ions
:
1.$500t oday.
2.$520oneye arfrom t
oda y.
3.$550t woye arsfrom today.
Whichoft hefol l
owi ngistrue?
a. 1hasthel owe stpresentvalueand3hast hehighes
t.
b.2hast hel owe stpresentvalueand1hast hehighes
t.
c. 3hasthel owe stpresentvalueand2hast hehighes
t.
d.Noneoft hea bovearec orr
e c
t.
ANSWER: b. 2hast helowe s
tpr esentvalueand1hasthehighes
t.
TYPE:M DI FFI
CULTY:1SECTI ON:14. 1

84. Suppos et hatthei nte

restrateis8per cent.Consi
dert
hreepaymentopt
ions
.
1.$300today.
2.$330oneye arfrom today.
3.$360twoye arsfrom today .
Whi chofthef oll
owi ngist r
ue ?
a. 1hast hehi ghestpresentvalueand2hast hel
owest
.
b.2hast hehi ghestpresentvalueand3hast hel
owest
.
c. 3hast hehi ghestpresentvalueand1hast hel
owest
.
d.Noneoft hea bovear ecorrect
.
ANSWER: c. 3hast hehighe stpresentvalueand1hasthelowest
.
TYPE:M DI FFICULTY:2SECTI ON:14.1

85. Pa twasgivent wochoic

eswhe nt heinteres
tr at
ewas6pe rce
nt.I
neachc as
eshewassupposedt
ochoos
etheopt
ion
withthehighestpr
esentvalue.I
nopt ion1Pa tchose$200todayover$215ayearf
rom t
oday
.Inopt
ion2Patc
hose
$400t
odayove r$420aye arfr
om today .Whi chofthefoll
owi ngi
scorre
ct?
a. Patmadet heri
ghtchoiceinbothc ases.
b.Pa tmadet heri
ghtchoiceinthefir stcaseonly.
c. Patmadet heri
ghtchoiceinthese condc aseonly.
d.Pa tmadet hewrongc hoic
einbot hc ase
s.
ANSWER: c
. Patmadether i
ghtchoiceint hes ec
ondc aseonly.
TYPE:M DIFFICULTY:1SECTI ON:14.1

about:blank 13/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

390  Chapter 14/The Basic Tools of Finance

86. Ar twasgive
nt wochoiceswhe ntheinterestratewas3pe rc
ent.I
ne ac
hcasehewassupposedt
ochoos
etheopti
on
withthehighestpr
esentvalue.Inoption1Ar tchose$50todayover$51ayearf
rom t
oday.I
nopti
on2Artchos
e$250
todayover$260ayearf r
om today.Whi choft hefoll
owingiscorr
ect
?
a. Artmadet heri
ghtc hoi
ceinbot hcases.
b.Ar tmadet heri
ghtc hoi
ceonl yinthefir stcase.
c. Artmadet heri
ghtc hoi
ceonl yinthese condc as
e.
d.Ar tmadethewrongc hoiceinbothc ases.
ANSWER: b. Artmadet heri
ghtc hoic
eonl yint hefir stc
ase.
TYPE:M DI FFICULTY:1SECTI ON:14. 1

87. Hydr oGrow isconsi

deri
ngbuildingane w buil
dingi nwhic htogrow tomat
oes.Theboardmeetsanddec
idestha
t
thi
sisther i
ghtthingtodo.Befor
et heyc anputt hei
rplansi ntoact
ion,thei
nte
restr
ateinc
reas
es.Thepr
esentval
ue
ofthereturnsfrom t
hisi
nvestmentpr oject
a.f all
s,andsoHydr oGrow islesslikelytobuildthebuilding.
b.f all
s,andsoHydr oGrow i
smor elikelytobuildthebuilding.
c.r ise
,ands oHydr oGr
ow isles
sl ikelytobuildthebuilding.
d.r ise
,ands oHydr oGr
ow ismor el i
ke l
ytobuildthebui l
di ng.
ANSWER: a. fall
s,andsoHydroGr ow islessli
kelytobuil
dt hebui l
ding.
TYPE:M DI FFICULTY:1SECTI ON:14.1

88. HappyTr ail

s ,abicycl
erentalcompany ,isconsi
der
ingpur c
hasingaddi
tionalbic
ycle
s.Eachbicycl
ewouldc os
tthem
$249.
66.Att hee ndofthefir styeartheincre
asetothei
rrevenueswouldbe$140perbi c
yc l
e.Attheendofthesecond
yeartheincre as
etotheirrevenueswoul dbe$115pe rbic
ycleandtheycans el
leachusedbikeforanothe
r$25.At
whichoft hef ol
lowinginte
r e
str a
tesisthesum oft
hepr ese
ntvalueoft
her evenuesfr
om buyingabi c
yclec
loses
tto
thepriceofthebi cycl
e?
a. 5per c
ent
b.6per c
ent
c. 7per c
ent
d.8pe rc
ent
ANSWER: d. 8per cent
TYPE:M DI FFICULTY:3SECTI ON:14. 1

89. Af allinther a
teofinter
estwi l
l
a.re duceinvestmentprimaril
ybec auseitwillreducethepr e
s e
ntvalueoffutur
er evenuese xpecte
df rom
inve s
tme ntproj
ects.
b.re duceinvestmentprimaril
ybec auseitwillincr
easethepr esentval
ueofcurrentconstructi
onc osts
.
c.inc r
easeinvestmentprimarilybecauseitwi l
lincre
aset hepresentval
ueoffuturerevenue sexpectedf r
om
inve s
tme ntproj
ects.
d.inc r
easeinvestmentprima r
ilybecauseitwi l
lreducethepr esentval
ueofcurrentconstructi
onc osts
.
ANSWER: c . incre
aseinvestmentpr i
marilybecaus ei
twi l
lincreas
et hepres
entval
ueoff ut
ur erevenuese xpec
tedf
rom
invest
me ntproje
cts.
TYPE:M DI FFICULTY:3SECTI ON:14. 1

90. Afir m hasthreediffe rentinvestmentopti

ons,eachcosti
ng$10mi l
li
on.Opti
onAwi llgener
ate$12mil
li
oninreve
nue
att
hee ndofoneye ar.Opti
onBwi llge
nerat
e$15mi ll
ioninrevenueattheendoftwoyears.Opt
ionCwi l
lgener
ate
$18mi l
li
oninr e
ve nuea tt
hee ndoft hr
eeyears.Whichoptionshouldthefir mchoos
e?
a. OptionA
b.Opt ionB
c. OptionC
d.Theans we rdepe ndsont herateofint
eres
t.
ANSWER: d. Theans werde pendsont herat
eofi nt
eres
t.
TYPE:M DI FFICULTY:2SECTI ON:14. 1

about:blank 14/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  391

91. Afir m hasthreedi ffe rentinvest

mentoptions.Opt i
onAwi l
lgivet
hefir m $10mi l
lionattheendofoneye ar,$
10
milli
ona tt
hee ndoft woyear s
,and$10mi l
li
ona ttheendofthreeyear
s.Opti
onBwi llgivethefir m$ 15mill
iona t
theendofoneye ar,$10mi l
lionattheendoft woye ars
,and$5milli
onattheendofthreeyears.Opti
onCwi llgive
thefir m $30mi ll
iona tthee ndofoneyear,andnot hingt
her
eafte
r.Whichofthes
eopt i
onsha sthehi
ghestpresent
value?
a. OptionA
b.Opt ionB
c. OptionC
d.Theans werde pe ndsont herateofi
nte
rest.
ANSWER: c. Opt i
onC
TYPE:M DI FFICULTY:3SECTI ON:14. 1

92. Afir m hasfourdi ffe rentinvest

mentopt ions.Opt i
onAwi l
lgivethefir m$ 10mi l
li
ona ttheendofoneye ar
,$10
mil
liona tt
hee ndoft woye ars,and$10mi ll
iona ttheendoft hreeyears
.Opt i
onBwi llgivethefir m$5mi l
lionatthe
endofoneye ar,$ 10mi l
li
ona ttheendoft woye ars,and$15mi lli
onattheendoft hr
eeye ars.Opt i
onCwi l
lgivethe
firm $15mi lliona ttheendofoneye ar,$10mi l
li
ona tthee
ndoft woyears,and$5mi ll
iona ttheendofthreeyears
.
OptionDwi l
lgivet hefir m $21mi ll
ionatthee ndofoneye ar
,nothingattheendoft woye a rs
,and$9mill
iona tt
he
endoft hre
eye ars.Whi choftheseoptionshast hehighestpresentval
ueifther a
teofi nte
r e
sti s5perc
ent
?
a. OptionA
b.Opt ionB
c. OptionC
d.Opt ionD
ANSWER: d. Opt ionD
TYPE:M DI FFICULTY:3SECTI ON:14.1

93. Ast hei nte

restrat
er i
ses,thepr
esentvalueoffut
urer
eve
nue
sfr
om i
nve
stme
ntpr
oje
cts
a.rise,soinvestmentspe ndi
ngr i
ses.
b.fall,soinvest
me ntspendingrises.
c.rise,soinvestmentspe ndi
ngfalls.
d.fall,soinvest
me ntspendingfalls
.
ANSWER: d. fal
l,soinvestmentspendingfal
ls.
TYPE:M DI FFICULTY:3SECTI ON:14.1

94. AUni versityofIowabasketbal

lstandoutisoffe r
edac hoi
ceofcontr
actsbytheNew YorkLibe
rty.Thefir stonegives
her$50,000oneye arfrom t
odayand$50 ,
000twoyearsfrom toda
y.Thesecondonegivesher$66,
000oneye arfrom
todayand$33, 000twoye ar
sfrom today.Asheragent,youmus tfindt heint
e r
estr
ateandcomput ethepre
s e
ntva l
ue
ofeachc ontra
ct.Whichofthef ol
lowinginter
estr
atesisthelowestoneatwhichthesum oft
heprese ntva
luesfrom
thesecondc ontrac
texceedsthatofthefir st
?
a. 7per cent
b.8per cent
c. 9per cent
d.10pe rcent
ANSWER: a. 7percent
TYPE:M DI FFICULTY:3SECTI ON:14.1

95. Ac arsalespersongi vesyouf ouralternati

vewa ystopayforyourcar
.Thefir s
tistopay$18,000today
.Thesecondi
s
topa y$19,000oneye arfrom t oday.Thet hir
di st
opa y$20,
300twoyearsf
rom t
oday.Thefourthistopay$21,
500
thr
e eyearsfrom toda y.Ifthei nter
e s
tr a
teis6percent,whic
hpa ymentopt
ionhasthelowe
s tpres
entvalueandwhich
hasthehi ghest?
a. Thefir s
tislowe st;thes econdi shighest.
b.Thes econdi slowe st;thet hi
rdi shighest.
c. Thet hirdislowe st;thef ourthishighe s
t.
d.Thef ourthislowes t
;thefir stishighest.
ANSWER: b. Thes econdi sl owest;thethirdishighest
.
TYPE:M DI FFICULTY:3SECTI ON:14. 1

about:blank 15/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

392  Chapter 14/The Basic Tools of Finance

96. Nor neCor por at

ionisconsider
ingbuil
dinganew pl
ant.Itwil
lcos
tthem $1mil
li
ont oda
ytobui
ldi
tanditwil
l
generat
er e
ve nuesof$1,121mill
ionthreeye
arsf
rom t
oda y.Oft
heinte
res
trat
esbelow,whic
hi hehi
st g
hes
tint
eres
t
ra
teatwhi chNor newoulds t
il
lbewi l
li
ngtobui
ldtheplant?
a. 3percent
b.3.5pe rcent
c. 4percent
d.4.5pe rcent
ANSWER: b. 3.5pe rc
ent
TYPE:M DI FFICULTY:2SECTI ON:14.1

97. Kr ame r’
sFrozenSandwiche sist
hinkingofbuildinganew war e
hous e.Theybe li
evet
hatt
hiswillgiventhem $50,
000
ofadditi
onalrevenueatthee ndofoneye ar
,$60,000addi
tionalrevenuea ttheendoftwoyear
s,and$70 ,000i
n
addit
ionalrevenueattheendoft hreeyears
.Iftheinte
res
tr a
teis5per cent,
t he
ywouldbewi l
li
ngt opa y
a. $140,
000,butnot$150,000.
b.$150,000,butnot$160,000.
c. $160,
000,butnot$170,000.
d.$170,000,butnot$180,000
ANSWER: c. $160,
000,butnot$170,000.
TYPE:M DI FFICULTY:1SECTI ON:14. 1

98. Whe nthei ntere

strat
eris
e s
,thequantit
yofloanabl
efundsde
mande
d
a.ris
es,andi nvest
mentspe ndi
ngr i
ses.
b.ris
es,andi nvest
mentspe ndi
ngfalls
.
c.fal
ls,andinve s
tmentspendingrise
s.
d.fal
ls,andinve s
tmentspendingfall
s.
ANSWER: d. f
alls
,andinvest
me ntspendingf
all
s.
TYPE:M DIFFICULTY:1SECTI ON:14.1

99. Whe nthei ntere

s trat
ef al
ls,t
hequa nti
tyofl
oanabl
efundsde
mande
d
a.ris
es,andi nve s
tments pendingr i
ses.
b.ris
es,andi nve s
tments pendingfalls
.
c.fal
ls,andinve stments pendingrise
s.
d.fal
ls,andinve stments pendingfall
s.
ANSWER: a. r
ises,andi nvestmentspendingr
ise
s.
TYPE:M DIFFICULTY:1SECTI ON:14. 1

100. Whic hofthefol

lowingi sthecorr
ectwayt
ost
atet
her
uleof70?Avar
iabl
ewi
thagr
owt
hra
teofXpe
rce
nt
a. doublesever
y70/xye ars.
b.doubl esever
y70( 1–1 /x)years.
2
c. doublesever
y70/x ye ar
s.
d.doubl esever
y70/( 1–x)ye ars
.
ANSWER: a. double
se very70/xye ars
.
TYPE:M DI FFI
CULTY:1SECTI ON:14.1

101. Accordingtotheruleof70,i
fthei
nter
estr
atei
s10pe
rce
nt,a
bouthow l
ongwi
lli
tta
kef
ort
heva
lueofas
avi
ngs
acc
ountt odouble?
a. about6.3years
b.about7ye ars
c. about7.7years
d.about10ye ars
ANSWER: b. about7years
TYPE:M DI FFICULTY:1SECTI ON:14.1

102. Accordingtotheruleof70,i
fthei
nter
estr
atei
s5pe
rce
nt,how l
ongwi
lli
ttakef
ort
heva
lueofas
avi
ngsac
countt
o
double?
a. about3.5years
b.about6. 3years
c. about12ye ar
s
d.about14ye ar
s
ANSWER: d. about14years
TYPE:M DI FFICULTY:1SECTI ON:14.1

about:blank 16/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  393

103. Sariputs$100i nanac

countwit
hani
nter
estr
ateof10pe
rce
nt.Ac
cor
dingt
other
uleof70,abouthow muc
hdoe
sshe
haveatt heendof21years
?
a. $210
b.$300
c. $800
d.$1, 010
ANSWER: c. $800
TYPE:M DI FFI CULTY:2SECTION:14.
1

104. Nancywoul dliket

odoublethemoneyinherre
tir
eme
nta
ccounti
nfiveye
ars
.Ac
cor
dingt
other
uleof70,wha
tra
te
ofi
nteres
twoul dshenee
dt oobt
ainhergoal
?
a. 5percent
b.7per cent
c. 10percent
d.14pe rcent
ANSWER: d. 14perc
ent
TYPE:M DI FFI
CULTY:2SECTI ON:14.1

105. Twent yye a

rsa go
,Dr .Mont gomer yborr
owe dmone
yfrom he
rparent
stopayhert
uiti
onatgra
dua t
es chool
.Now she
wantst opa ythem back.Shegive sthem doubl
ewhatt
heygaveher
.Accor
dingtot
heruleof70
,wha tinter
estr
ate
wouldha vegivenherpa rentsthes ameamountofmoneyi
ftheyhadputiti
nthebankrat
herthanlendingitt
otheir
daught er
?
a. 3.5pe rc
ent
b.4. 5pe rc
ent
c. 5per cent
d.7pe rcent
ANSWER: a. 3.
5pe rc
ent
TYPE:M DI FFICULTY:2SECTI ON:14. 1

106. Fourt
e enye arsa
goAl f
redputmone yinhi
sacc
ounta
tFi
rstNationalBank.Alf
reddecidest
ocashi
nhisac
countand
ist
oldtha thismone yhasquadruple
d.Acc
ordi
ngtot
heruleof70,wha tr
ateofint
ere
stdidAlf
redear
n?
a. 5per c
e nt
b.7per c
e nt
c. 10per cent
d.14pe rcent
ANSWER: c. 10perc
ent
TYPE:M DI FFICULTY:3SECTI ON:14.1

107. Youar eteari

ngdownabuildi
ngandfind$1i nchangethatsomeonelostwhenwor
kingont
hebui
lding140ye
ars
ago.Ifi
nsteadofbei
ngcare
les
switht
heirchange,t
hispersonhaddeposit
edthei
r$1i
nabankandea
r ned2perc
ent
int
erest
,how muc hwouldbeint
heaccounttoda
yac cor
dingtotherul
eof70 ?
a. $4
b.$16
c. $32
d.Noneoft heabovear
ecorr
ect
.
ANSWER: b. $16
TYPE:M DI FFICULTY:3SECTION:14.
1

108. Robertisr i
ska ver
seandhas$1,000wi t
hwhi chtoma keafina nciali
nvest
ment.Hehasthre
eoptions
.OptionAisa
ri
sk-f
reegove rnme ntbondthatpays5pe rc
entinte
res
teachyearfortwoyears.Opti
onBisalow-ri
skst
ockthat
anal
ys t
se xpecttobewor t
habout$1,102.50intwoyears.Opt
ionCi sahigh-r
iskst
ockt
hatisexpe
ctedtobeworth
about$1,200i nfouryears
.Robertshouldchoose
a. optionA.
b.opt ionB.
c. optionC.
d.ei t
he rAorBbe c
ausethe
yar ethesamet ohim.
ANSWER: a. optionA.
TYPE:M DI FFICULTY:2SECTI ON:14.1and27. 2

about:blank 17/31
4/18/23, 7:23 PM Macroeconomic Test Bank 10

394  Chapter 14/The Basic Tools of Finance

109. Risk-
aversepeoplewillchoosediffe rentas s
e tport
foli
osthanpe oplewhoar enotr i
skaverse.Overalongpe
riodof
ti
me ,wewoul dexpectthat
a.e veryris
k-aver
sepersonwi llear
nahi gherr at
eofretur
nt hane verynon- ri
ska ver
seperson.
b.e veryris
k-aver
sepersonwi llear
nal owerr at
eofr e
turnthane verynon- ris
ka vers
epe r
son.
c.t heaverageri
sk-a
versepersonwi llearnahi gherrateofretur
nt hant hea ver
a genon-r
iskaverseper
son.
d.t heaverageri
sk-a
ve r
sepersonwi llearnal owe rr
ateofreturnthant hea veragenon-ri
skave r
sepers
on.
ANSWER: d. theavera
ger is
k-a
ver s
epe rs
onwi l
le arnalowerrateofr et
urnt hant heavera
genon- ri
skavers
eper
son.
TYPE:M DI FFICULTY:2SECTI ON:14.2

110. Ame asureofthevolat

il
it
yofavar iabl
eisi
ts
a. presentvalue.
b.f uturevalue.
c.r eturn.
d.s tandardde vi
ati
on.
ANSWER: d. standarddevia
tion.
TYPE:M DI FFICULTY:1SECTI ON:14. 2

111. Arisk-aver
s epe rson
a. woul dne cessari
lynotplayagamewhe r
eshehada50pe
rce
ntchanceofwinni
ng$1anda50perc
entchanceof
l
os i
ng$ 1.
b.woul dne cessari
lynotplayagamewhe r
eshehada75pe
rce
ntchanceofwinni
ng$1anda25perc
entchanceof
l
os i
ng$ 1.
c. bothoft hea bovear ecor
rect
.
d.Ne i
theroft heabovear ecorr
ect.
ANSWER: a. woul dne c
e ss
ari
lynotpla
yagamewheres
hehada50percentc
hanceofwi
nning$1anda50perce
nt
chanc eoflosi
ng$1.
TYPE:M DI FFICULTY:2SECTI ON:14.2

112. Whichoft hefoll

owinggamesmightari
sk-avers
epe rsonbewil
li
ngtopl
ay?
a. Agamewhe r
eshehasa50pe r
centc
hanc eofwi nning$
1anda50perce
ntchanceofl
osi
ng$1.
b.Agamewhe r
eshehasa60pe r
centc
hanc eofwi nning$
1anda40perce
ntchanceofl
osi
ng$1.
c. Bothoftheabove.
d.Ne i
theroftheabove
.
ANSWER: b. Agamewhe res
hehasa60pe r
ce ntchanceofwinni
ng$1anda40perce
ntchanceofl
osi
ng$1
.
TYPE:M DI FFICULTY:2SECTI ON:14.
2

113. Whi c
hoft hefoll
owi nggamesmi
ghtari
sk-
avers
eper
sonbewi
ll
ingt
opl
ay?
a. Agamewhe reshehasa60per
centc
hanceofwi
nning$
1anda40pe
rce
ntc
hanc
eofgett
ingnot
hing.
b.Agamewhe reshehasa70per
centc
hanceofwi
nning$
1anda30pe
rce
ntc
hanc
eoflos
inga$1.
c. bothofthea bove
d.nei t
heroftheabove
ANSWER: c. bothoftheabove
TYPE:M DI FFICULTY:2SECTI ON:14.
2

114. Whi c
hoft hefoll
owingistrueconc erningar is
k-avers
epe r
son?
a. Shewoul dnotplaygame swhe r ethepr obabi
lit
yofwi nningandlos
ingadol
larar
ethes
ame
.
b.Shemi ghtnotbuyhe al
thinsuranc eifshethinkshe rr
isksarel
ow.
c. He rmarginaluti
li
tyofwe alt
hde c
re as
esashe rincomei nc
reas
es.
d.Al loftheabovearecorrect.
ANSWER: d. Alloftheabovearec or
r ect
.
TYPE:M DI FFI
CULTY:2SECTI ON:14. 2

115. Eddieisriskaverse.Whic
hofthef ol
lowingistrueaboutEddie
?
a. Hisma rginalutil
it
yofwealt
hi ncre
asesashisincomeincr
ease
s.
b.Hewi llnotacceptbet
swhe r
ehi sprobabil
it
yofwi nni
ngandlosi
ngadol
larar
ethesame.
c. bothofthea bove
d.nei t
heroft heabove
ANSWER: b. Hewi llnotacc
eptbetswhe rehisprobabi
li
tyofwinni
ngandl
osi
ngadollarar
ethes
ame
.
TYPE:M DI FFICULTY:1SECTI ON:14.2

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4/18/23, 7:23 PM Macroeconomic Test Bank 10

Chapter 14/The Basic Tools of Finance  395

116. Ifapersonisri
skaverse,thenhehas
a. diminis
hingma rginaluti
li
tyofwe alth,i
mplyingthathi
sutil
it
yf unc
tionget
sfla tteraswealt
hi ncr
eases
.
b.di minis
hingma rginaluti
li
tyofwe alth,i
mplyingthathi
sutil
it
yf unc
tionget
sstee
pe raswealt
hi ncre
ases.
c.inc r
easi
ngma rginalutil
it
yofwe alth,implyi
ngthathisuti
li
tyfuncti
ongetsfla t
teraswe a
lthincreas
es.
d.inc r
easi
ngmar ginalutil
it
yofwe alth,implyi
ngthathisuti
li
tyfuncti
ongetsst
eeperaswe al
thincrease
s.
ANSWER: a. di
minishingma rginalut
il
ityofwe al
th,implyi
ngthathisuti
lit
yfunct
iongetsfla tt
eraswe althi
ncr
eas
es.
TYPE:M DI FFICULTY:1SECTI ON:14.2

117. Theut i
li
tyfunc t
ionofari
sk-
aver
s epersonhasa
a. posit
iveslopeandgetsst
eeperaswe althincr
eas e
s.
b.pos it
iveslopebutget
sfla tt
eraswe alt
hincreases.
c. negati
ves l
opebutgetsst
eeperaswe althincr
eas e
s.
d.ne gati
ves l
opeandgetsfla t
teraswe al
thincreases.
ANSWER: b.posit
iveslope
,butget
sfla t
teraswe alt
hinc reas
es.
TYPE:M DI FFICULTY:2SECTI ON:14.
2

118. Ariska ver

sepers
onhas
a. util
ityandmargi
naluti
li
tycurve
sthats
lopeupwar d.
b.ut il
ityandmargi
naluti
li
tycurve
sthats
lopedownwar d.
c. autili
tycur
vethats
lopesdownandamar ginalutil
it
yc urvethatsl
opesupward.
d.aut ili
tycur
vethats
lopesupwardandamar ginaluti
li
tyc urvetha
tslopesdownward.
ANSWER: d. auti
li
tycur
vethatsl
opesupwardandamar ginalutil
it
ycurvethatsl
opesdownwar
d.
TYPE:M DI FFICULTY:3SECTION:14.2

119. Diminishingmargi
nalut i
li
tyofwe al
t himpliesthatt
heut
il
it
yfunc
tioni
s
a. upwar dsl
opingandhasde creasi
ngs l
ope .
b.upwar dsl
opingandhasi ncr
easings lope.
c. downwar dsl
opinga ndhasde creasingslope.
d.downwar dsl
opingandhasi nc r
eas i
ngs l
ope .
ANSWER: a. upwardslopingandhasde creas
ings l
ope.
TYPE:M DI FFICULTY:2SECTI ON:14.2

120. Ifapersonisris
kaverse,t
he naswe al
thinc
reas
es,t
ota
lut
il
it
yofwe
alt
h
a.inc r
easesatanincr
e as
ingr a
te
b.inc r
easesatadecreasi
ngr at
e
c. decreas
esatanincreasingrat
e
d.de creas
esatade c
reasingrate
ANSWER: b. inc
reas
esatade c
reasi
ngrate
TYPE:M DI FFICULTY:2SECTI ON:14. 2

121. Ris
k
a.c anber e
ducedbyplaci
ngalar genumbe
rofsmallbet
srat
herthanas
mal
lnumbe
rofl
argebe
ts.
b.c anber e
ducedbyinc
reasi
ngt henumberofs
toc
ksi naport
fol
io.
c. BothAandBar ecorr
e c
t.
d.Ne i
therAnorBarecorrec
t.
ANSWER: c. Bot
hA andBar ecor
rec t
.
TYPE:M DI FFICULTY:1SECTION:14.2

122. Thelast$1,
000ofAr nold’
swe al
thaddsmor etohisutil
it
yt hanthepr
evi
ous$1,
000
.Bas
edont
hisi
nfor
mat
ion,
Arnol
dhas
a.increasi
ngma rginaluti
li
tyofwealthandi sri
skavers
e
b.increasi
ngma rginaluti
li
tyofwealthandi snotri
skaverse
c. decreas
ingmarginalutil
it
yofwe al
thandi sris
kaverse
d.de cre
asingma r
ginalutil
it
yofwe al
thandi snotri
ska ve
r s
e
ANSWER: c
. dec
reasi
ngma r
ginalut
il
ityofwe alt
h,andisris
ka ve
rse
TYPE:M DIFFI CULTY:1SECTI ON:14.2

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4/18/23, 7:23 PM Macroeconomic Test Bank 10

396  Chapter 14/The Basic Tools of Finance

123. Thel a
st$500ofMar y’swe alt
haddsmor etohe rut
il
itythananother$500woul
d. Base
dont
hisi
nfor
mat
ion,Mar
y’s
uti
li
tyf unc
tion
a. andma rginaluti
li
tyf uncti
onar ebothupwar dsloping.
b.andma rginaluti
li
tyf uncti
onar ebothdownwa rds l
oping.
c.i supwards lopi
nga ndhe rma rginalut
ili
tyfunct
ioni sdownwards l
opi
ng.
d.i sdownwar ds l
opingandhe rmar gi
nalutil
ityf
unc t
ionisupwards l
opi
ng.
ANSWER: c. isupwards lopingandhe rmargi
nalutil
ityfuncti
onisdownwa r
dsloping.
TYPE:M DI FFICULTY:2SECTI ON:14. 2

124. Tiffanyknowst hatpeopl

einherf amilydieyoung, andsoshebuyslif
einsur
ance.Markknowshei
sar
eckl
essdr
ive
r
ands oheappli
esf oraut
omobileinsurance.
a. Thesearebothe xample
sofadver s
es el
ection.
b.The searebothe xample
sofmor alhazard.
c. Thefir stexampl ei
ll
ustr
atesadverseselecti
on,andthesecondil
lus
trat
esmoralhazard.
d.Thefir stexampl ei
ll
ustr
atesmor alhazard,andthesecondill
ust
rat
esadvers
es e
lec
tion.
ANSWER: a. The searebothexamplesofadver seselec
tion.
TYPE:M DI FFI
CULTY:1SECTI ON:14.2

125. Whichofthef oll

owi ngisadverses el
ecti
on?
a.ther i
skassociat
e dwi t
hs ele
ctingstocksinonlyafe wspecificc ompanie
s
b.ther i
skthatape r
sonwi llbecomeove rconfide ntinhisabil
it
ytos el
ects
toc
ks
c. ahigh-r
iskpe r
sonbe i
ngmor el i
kelytoapplyforinsuranc
e
d.afterobtai
ningi nsuranceaper sonhavinglessincenti
vetobec ar
eful
ANSWER: c
. ahigh-riskpersonbeingmor eli
kel
ytoappl yforinsur
anc e
TYPE:M DIFFICULTY:1SECTI ON:14. 2

126. Whic hofthefoll

owingbestil
lustr
a t
esmor alhazard?
a. Afterapersonobtai
nsautoi nsurance,s
hedr ivesles
sc are
full
y.
b.Ape rsonobtai
nsinsura
nceknowi nghei sinpoorhe alth.
c. Ape rsonholdsst
ockonlyi nveryr i
skyc orpora
tions.
d.A per sonholdsst
ocksfrom onlyaf ewc orporat
ions.
ANSWER: a. Afterapers
onobt ai
nsaut oinsurance,shedrivesles
sc ar
eful
ly.
TYPE:M DI FFICULTY:1SECTI ON:14. 2

127. Whe nyour entavi deo,youmighttr

eati
twi
thl
essc
aret
hanyouwoul
difi
twe
reyourown.
Thi
sisane
xampl
eof
a.a ggregateri
sk.
b.mor alhazar
d.
c. adversesele
c t
ion.
d.s elf
-ser
vinga t
tribut
ionbi
as.
ANSWER: b. mor alhazard.
TYPE:M DI FFICULTY:1SECTI ON:14.2

128. Whi chofthef ol

lowingde fine sanannuity?
a. Foraf e
e ,aninsurancec ompanyprovide syouwi t
hregulari
ncomeunti
lyoudie.
b.Ane xtrafeec har
gedt ope r
sonsindange rousoccupat
ionsbyli
fei
nsura
ncecompanies
.
c.I t
’sanothe rnamef orstockfundsmana ge dbymut ualfundmanager
s.
d.I
t’sanothe rnamef oranydi versi
fiedpor tf
oli
o.
ANSWER: a.Foraf ee,aninsuranc ec
ompanypr ovi desyouwithr e
gul
arinc
omeuntilyoudie
.
TYPE:M DI FFICULTY:1SECTI ON:14. 2

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